DURHAM City Council may have to allow development on a greenbelt if a company is refused permission to build 250 houses on derelict land in Bowburn, a public inquiry has heard.

The council last year denied Hallam Land Management and Commercial Estates Group permission for a £7m scheme to build houses, offices and industrial units on the former Cape Asbestos factory site.

But David Graham, a consultant acting for Hallam, warned a public inquiry reviewing the scheme that without it, the council may struggle to meet housing targets.

"The site offers an opportunity to provide new housing on a vacant and previously developed site in a sustainable location," Mr Graham said.

"The council has identified a number of preferred sites to enable it to meet its housing requirement.

"However, I have serious reservations as to the appropriateness of these sites and hence their likelihood of ever coming forward. The sites include greenfield playing fields and even sites in the greenbelt."

The 30-acre plot, which has been disused since Cape Asbestos closed in 1990 with the loss of 170 jobs, is earmarked for business use.

Hallam wants to use 30 per cent of the site for business, which it says could create about 380 jobs.

But the company says it cannot make a profit from the scheme unless it builds some houses, because the asbestos-contaminated land will cost £2.37m to clean up.

Durham City Council says it will meet its housing targets and the Bowburn land is more suitable for business than housing.

Regional development agency One NorthEast, the North East Assembly and Durham County Council have all raised concerns about Hallam's plans.

However, a conservation group has backed the scheme.

In a written statement submitted to the inquiry, Douglas Pocock, secretary of the City of Durham Trust, said: "The trust's position is that the site is suitable for mixed development.

"The location and brownfield nature of the present site could well be used, or partly used and phased, ahead of some other sites, not least in providing a portion of 'affordable' units."

Hallam says about one-third of houses on the plot would be devoted to affordable houses.

It is expected to be several months before the result of the public inquiry, which is due to finish today, is announced.